May 2. Little reaction to FOMC, ECB today.

–The FOMC caused little market movement though the statement cited fiscal policy as restrictive and said QE may be either reduced or increased. I read the latter as the Fed preparing markets for a change in amount, but lean towards less QE.  The WSJ and FT chose to emphasize the idea of more QE.  I’m sure the Fed wants to send that message to the politicians: “you have shirked responsible budget decisions by default, so we’ll reward your well-heeled constituents by pumping more money into the system so that stocks and other risk assets levitate.” Maybe.
–While it is clear that growth is slowing (or stopped), Fed members have more recently focused on risks of unbridled QE.  In terms of depressed growth, yesterday’s ISM employment component at 50.2 was as low as it has been any time since late 2009.  Business Insider post from today: Public Spending On Construction Hits Its Lowest Levels Since 2001.  Copper’s price action reflects slowdown, falling around 10 cents yesterday to a new low, now nearing $3.  Oil also had a large drop (though not to new lows).
–There was a large bearish trade in EEM (Emerging Mkt ETF), a buyer of 240k May 42.5 puts for 0.42.  These puts are near 50 delta, avg volume in EEM is around 50m shares, this trade alone is equivalent to a sale of 10m shares.
–ECB this morning, cut expected.  France sold 10’s at record low 1.81%.  Eurozone PMI showed mixed improvement, though Germany fell to 48.1 from 49.
–US interest rates did fall somewhat yesterday, with new lows in the curve.  2/10 fell 3 bps to 143.6.  Red euro$ pack to all deferred contracts either thru or near recent lows.  However, there was a large option put spread spread fading the move: +50k EDH6 9900/9875ps to sell EDH5 9950/9925ps for 2.0 debit.
–US news includes Trade deficit, expected 42.5B and Jobless Claims 345k

Posted on May 2, 2013 at 5:37 am by alexmanzara · Permalink
In: Eurodollar Options

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